The government gave a green light to zoning and planning in the area known as E1
between Jerusalem and Ma’aleh Adumim, but not to actual construction there,
Prime Minister Binyamin Netanyahu clarified to his Likud ministers Sunday as
condemnations of the move continued to pour into Israel from around the
world.

With these comments, Netanyahu – speaking to his Likud ministers
before the weekly cabinet meeting – seemed to signal to the Palestinians that if
they go further with the type of unilateral actions they took at the UN on
Thursday, Israel would indeed build in E1.

Netanyahu also told the ministers that the
3,000 housing units he authorized on Friday would be built in communities in the
large settlement blocs, as well as in post-1967 neighborhoods in the capital. A
spokesman for the Construction and Housing Ministry said he expected the units
to be built in Ariel, Elkana, Efrat, Karnei Shomron and the Jerusalem
neighborhoods of Pisgat Ze’ev and Gilo.

Friday’s announcement of the
additional units and the planning work to be done on E1 was the government’s
immediate reaction to the Palestinians’ successful move to upgrade their status
at the UN General Assembly to that of non-member observer state.

On
Sunday, Finance Minister Yuval Steinitz announced the second reaction:
withholding some NIS 450 million of tax revenue Israel collects each month for
the PA.

The withheld funds will be used to pay part of the PA’s NIS 800m.
debt to the Israel Electric Corporation.

Steinitz, before Sunday’s
cabinet meeting, said Israel made clear that the PA’s move at the UN would not
go without a reaction. He said “we would see” about further tax revenue
transfers.

No further responses to the PA move are immediately expected,
one diplomatic official said.

Palestinian officials in Ramallah Sunday denounced the
decision, dubbing it an “act of piracy and blackmail.” They expressed hope that
the Arab countries would now fulfill their pledge to provide the PA with $100m.
per month to compensate for the loss of the tax revenue.

PLO Executive
Committee member Hana Amireh said that Arab League foreign ministers were
scheduled to meet on December 9 to discuss ways of supporting the PA in wake of
the Israeli decision. Amireh said the decision came as no surprise after the UN
vote, but that Israel is now in conflict with not only the Palestinians, but all
countries that voted in favor of the statehood bid at the UN.

EU foreign
policy chief Catherine Ashton slammed Israel’s announcement regarding E1 and
additional construction in the settlements, saying she was “extremely worried by
the prospects of settlement expansion on such a scale.”

“The reaction of
the international community to any such decision is likely also to be influenced
by the extent to which such expansion may represent a strategic step undermining
the prospects of a contiguous and viable Palestine with Jerusalem as the shared
capital of both it and Israel.”

UN Secretary-General Ban Kimoon also
condemned the announcement, saying he learned of it with “grave concern and
disappointment.”

Meanwhile, the ambassadors of several key EU countries –
Britain, France, German and the Netherlands – sought clarifications over the
weekend of the move, and urged Israel to reconsider. The issue is expected to be
high on the agenda of talks when Netanyahu meets German Chancellor Angela Merkel
in Berlin later this week.

One diplomat said the announcement undercut
Israel’s position in those countries that have in the past voted with Israel in
international forum, and that this step made it difficult for them to continue
doing so.

The official said countries who voted with Israel last year
when the Palestinians gained admittance to UNESCO as a state woke up the next
day to an announcement of Israeli settlement construction building as a
response. That made it difficult to explain their support for Israel to their
own citizens, the official said, adding that the exact same phenomenon was
repeating itself now.

The official added that the announcement of intent
to develop E1 was a particularly severe blow for the Europeans, because it
undercut Israel’s credibility in Europe that Israel was indeed interested in a
twostate solution.

Netanyahu, meanwhile, opened the weekly cabinet
meeting in defense of the announcement about settlement construction by quoting
former prime minister Yitzhak Rabin’s response to the notorious 1975 UN vote
equating Zionism with racism.

“The response to the attack on Zionism and
the State of Israel needs to be to reinforce and underscore the implementation
of the settlement plan in all areas where the government decided regarding
settlement,” Netanyahu quoted Rabin as saying. “Today we are building and we
will continue to build in Jerusalem and in all areas that are on the map of the
strategic interests of the State of Israel.”

Netanyahu characterized the
PA move at the UN as a “gross violation of agreements that were signed with
Israel,” and – as a result – something Israel completely rejected.

“There
will be no Palestinian state without an arrangement in which the security of
Israeli citizens will be ensured,” he said. “There will be no Palestinian state
until the State of Israel is recognized as the state of the Jewish people. There
will be no Palestinian state until the Palestinians declare an end to the
conflict. Israel will not agree to Judea and Samaria becoming a base for Iranian
terrorism, as happened in the areas we evacuated in the Gaza Strip and
Lebanon.”

The government formally rejected the UN resolution, unanimously
adopting a decision stating that nothing in the UN resolution “changes the
status of the areas under dispute” or constitutes “a basis for future
negotiations.”Khaled Abu Toameh and Tovah Lazaroff contributed to this
report.